Editorial: Americans can't afford a do-nothing Congress

Tuesday

Sep 30, 2008 at 12:01 AMSep 30, 2008 at 2:00 PM

On Monday the U.S. House of Representatives did what would have made all the sense in the world, if time were not of the essence, which is defeat a flawed $700 billion-plus bailout of America's financial sector.

On Monday the U.S. House of Representatives did what would have made all the sense in the world, if time were not of the essence, which is defeat a flawed $700 billion-plus bailout of America's financial sector.

Unfortunately, with major banks failing - the latest and nation's fourth largest, Wachovia, got swallowed up by Citigroup in a government-arranged-and-backed sale on Monday following Wachovia's near collapse - and an angry public that could turn into a panicked one at any moment, our elected representatives in Washington, D.C. do not have the luxury of time. One of the great lessons of the Great Depression was that Uncle Sam did not intervene quickly enough to forestall a run on the banks.

Congress is playing a game of chicken here, and this is no time for games. If the federal government does nothing, there could be more Black Mondays like yesterday, when the value of shares on Wall Street fell 9 percent in the largest one-day drop in two decades.

To be sure, this legislation left a lot to be desired. For one thing, it had grown in length from three to 110 pages - a political novella - to camouflage the reality that this "compromise" package essentially gave Treasury Secretary Hank Paulson everything he'd initially requested, with a few notes/improvements on the margins.

It would have given the appointed Paulson - and his eventual successor, whomever that might be - unprecedented powers to buy and sell not only toxic mortgage securities, but to rescue just about any floundering company, with precious little oversight that had any teeth to it. While much of the reporting suggested this bailout was capped at $700 billion, analysis of the fine print indicated that's $700 billion at any given time; conceivably taxpayers could be purchasing even more bad paper as Treasury sold off its earlier acquisitions.

While there had been talk of establishing limits on executive pay and giving taxpayers an ownership stake in these rescued companies, in the end there was criticism that those components had been severely watered down. The final version continued to overlook a potential remedy that would cost taxpayers nothing - bankruptcy relief for mortgage-holders, like there is for every other type of secured debt.

Nevertheless, by most accounts the negotiations of the last week had produced progress. The money was to be disbursed in parts, first $250 billion at Paulson's immediate disposal, then another $100 billion with the president's signature, then the remaining $350 billion over which Congress would have veto authority.

The concession that broke the partisan logjam would have allowed for Uncle Sam to recover his losses from the banks by taxing them, if need be, if after five years the bailout plan had failed to deliver a return. Some of its most vocal proponents, including President Bush, had expressed doubt it would come to that, arguing that the final price tag would be considerably less than $700 billion, with the government surely reselling the crippled securities at a higher price than it bought them. Why, taxpayers might even turn a profit.

In any event, "A recession costs way more than $700 billion," one economist told the New York Times. The conservative Wall Street Journal, while acknowledging the legislation's shortcomings, had urged passage, which was widely anticipated.

Alas, the House pulled a stunner, killing the bill 228-205 (central Illinois congressmen Ray LaHood, a Republican, and Phil Hare, a Democrat, both voted for the bailout). Critics - 133 Republicans accompanied by 95 Democrats - called it a "slippery slope to socialism." GOP Rep. Darrell Issa of California expressed his "resolute" rejection of the bill, saying it betrayed conservative principles, putting "a coffin on top of Ronald Reagan's coffin."

OK, but here's the threshold question: Do Congressman Issa and others of like mind really want to commit economic suicide on principle? Granted, there is no pain-free treatment here, and perhaps there shouldn't be, but what good is it if the patient dies while you're teaching him a lesson?

All involved need to recognize that it's not just America's economy at stake here. The European and Asian markets also were down sharply. The very foreigners who have been propping up the relatively lavish, indebted lifestyles of Americans are hinting they want no more of that now. This domestic meltdown could turn into a global one.

Perhaps it was too much to ask Congress to come up with a solution for such a monumental problem in such a short period of time. Absolutely, it's fair to be concerned about the concentration of power and the erosion of free market principles, not only in government but in the private sector, where three financial institutions - Bank of America, JPMorgan Chase and Citigroup - now reportedly control more than 30 percent of all deposits in this country.

That said, the bad decisions of the past have boxed our decision-makers into a corner now. There are no win-win options left. No one piece of legislation is going to "fix" anything; we have to change our want-it-all-right-now culture, and that's going to take some time.

Nonetheless, while we were not fans of the doomsday rhetoric surrounding this issue, Americans cannot afford for their Congress to do nothing now. Banks have stopped lending, and access to credit is the lifeblood of this economy, especially for small business. Reportedly, lawmakers want to go home so they can campaign for reelection. If they leave Washington without at least a workable, short-term package to calm the markets and buy some time - this week - not a single incumbent who voted "no" Monday should keep his or her job.